US rolls the dice at the WTO and loses; must change online gambling laws

The WTO has ruled that the US has done nothing to address past rulings about …

The tiny Caribbean nation of Antigua and Barbuda has just won a World Trade Organization (WTO) ruling against the US regarding online gambling. The WTO has ruled that the US "has failed to comply with the recommendations and rulings" of past WTO decisions, opening the way for possible trade penalties against the US.

The case began back in the summer of 2003, when Antigua and Barbuda requested that the WTO form a panel to investigate US laws against cross-border gambling web sites, many of which are based offshore in the Caribbean islands. The claim was that the US had not lived up to its obligations under the "General Agreement on Trade in Services" (GATS), and that it was blocking services between WTO member countries.

In November 2004, the WTO panel concluded that US federal laws (including the Wire Act and the Illegal Gambling Business Act) and several state laws incorrectly breached the GATS agreement, and they required the US to change its ways. In early 2005, the US and Antigua and Barbuda both appealed portions of the ruling. The appeal proved more favorable to the US (it agreed that gambling laws could fall under the "public morals" exception to GATS), but the US was still required to change its rules because it remained in violation of Article XIV of the GATS.

An arbitration panel headed by Dr. Claus-Dieter Ehlermann concluded that a reasonable time period for implementation was 11 months and two weeks, which meant that the US should have made changes by April 3, 2006. In the summer of 2006, Antigua and Barbuda claimed that nothing had yet been done, and they requested a new WTO panel to enforce compliance. That panel has just issued its report, which takes the US to task for not complying with the earlier ruling. "Rather than take that opportunity," the report says, "the United States enacted legislation that confirmed that the ambiguity at the heart of this dispute remains and, therefore, that the United States has not complied."

The biggest problem is the allegedly discriminatory nature of current US policy, which seems to treat US-based horseracing differently from gambling sites operated in foreign countries. Without a level playing field, the US does not have the right under GATS to limit similar services from other countries.

The ruling does illustrate the schizophrenic nature of US policy about gambling, which is that it's not okay—unless it takes place on reservations, "extra territorial" bits of reservations (i.e., places that aren't on a reservation at all), dog tracks, horse tracks, Las Vegas, Atlantic City, or on riverboats plopped down into artificial lakes made expressly for the purpose.

That hasn't stopped the federal government from conducting an active campaign against gambling websites based in other countries and the executives who run them. This weekend, the founder of BetOnSports (based in Antigua) was arrested in the Dominican Republic and extradited to Puerto Rico, charged with purposely providing gambling services to US citizens through the Internet. The company's CEO was previously arrested in the US and has been moved to St. Louis, where his trial will be held.

"Cross-border services" are also an issue in Europe, where Denmark, Hungary, and Finland have all shown resistance to some forms of gambling. The EU is trying to determine if these countries are violating their commitments to allow the free movement of service businesses. As with the US dispute, the issue in Europe is not about the restriction of gambling, but the fact that many countries regulate foreign gambling sites while continuing to allow or promote homegrown lotteries and casinos.

The complete WTO report (PDF) is available for those who want to wade through forty pages of bureaucratic writing at its finest.